The Preliminary Specification Part CXCII (PLM Part XXVII)

Lets assume for a moment that you are a vendor that is involved in the Petroleum Lease Marketplace and you want to involve yourself in the People, Ideas & Objects Preliminary Specification to expand your business. To include your firm in the “Marketplace Interface” would require you to use some of the interfaces that we developed in the Resource Marketplace module. This blog post is how the vendor would interact within the “Marketplace Interface” and engage with the producers and Joint Operating Committees that were looking for your products and services.

First we should mention who it will be that makes the changes that we expect to see in the “Marketplace Interface” of the Petroleum Lease Marketplace. Resistance to People, Ideas & Objects by the current bureaucracies has been strong. They have a comfortable system that keeps them firmly in control and do not foresee any need for change. So how do these changes in the marketplace come about. And how does a marketplace like that which has been described here in the past few days come about. The answer is simple and is reflected in this next quote from Professor Richard Langlois paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism”.

Ruttan Hayami (1984) have proposed a theory of institutional change that is relevant to my story of organizational and institutional change. As they see it, changes in relative scarcities, typically driven by changes in technology, create a demand for institutional change by dangling new sources of economic rent before the eyes of potential institutional innovators. Whether change occurs will depend on whether those in a position to generate it - or to block it - can be suitably persuaded. Since persuasion typically involves the direct or indirect sharing of the available rents, the probability of change increases as the rents increase. And the more an institutional or organization system becomes misaligned with economic realities, the more the rents of realignment increase. pp. 36 - 37

Simply is the profit opportunity from being an innovative oil and gas producer greater then what is offered by today’s marketplace? And will those that operate in the “Marketplace Interface” find greater profits by providing services that innovative producers will want and need. If either of those situations are the case then the profits will motivate the changes within the marketplaces described within this blog.

In terms of the interfaces that will help the vendors who provide lease and land services to the innovative oil and gas producers the first would be the “Vendor / Supplier Contact Database”. This provides the basic information that is needed for the oil and gas producer or Joint Operating Committee to have on the vendor. Think of it as a rich contact data base that is maintained by the vendor. There is a second aspect of this data base that provides a secondary or tertiary level of data to the producer when the firm is engaged by the producer. This includes access to the vendors staffing profiles, calendars and scheduling information and enables the producer and vendor to work to establish further elements of their working relationship. (Query the “Vendor / Supplier Bidding / Commitment Manager” for further information on the extent of these interactions.)

The second interface that would help the vendor in operating within the “Marketplace Interface” of the Petroleum Lease Marketplace would be the “Gap Filing Interface”. Recall this is the interface that is used by producers and vendors to communicate the need to have a “Gap Filled”. The gap being a situation where the division of labor could be expanded by providing a further service that is not currently offered. The expansion of the division of labor is done through the process of filling gaps. And if producers and vendors identify and communicate needs and services that are in need of filling, or demanding of new services, then the opportunity for the service to meet the demand will occur quickly. The reason for this is that we live in a time and a place where the service and the need may be located thousands of miles away from each other, or even just next door, and may never know that either exist. The “Gap Filling Interface” helps to eliminate the time and distance of these needs.

The third interface that provides value to the vendors in the “Marketplace Interface” of the Petroleum Lease Marketplace is the “Actionable Information Interface”. Although somewhat similar to the “Gap Filling Interface” it fills a different role. If a vendor was undertaking a strategic and competitive investment over the next five years that would fundamentally change their service offering. They would publish this information in the “Actionable Information Interface”. This would inform the producers and Joint Operating Committees of the prospective changes in the marketplace and allow them to engage the vendors on what they need. This being a collaborative interface the vendor would be able to engage the market to help define their market offering in the mid term. Most of this information is available to the prudent Google researcher today. However, it being located in one database in the “Actionable Information Interface” the value of the information in its aggregate would provide a unique window on the marketplace offerings and the direction of the industry. One might question why you would publish such sensitive information. I would remind readers that the act of publication is how you earn the copyright.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CXCI (PLM Part XXVI)

To review what we have with the “Marketplace Interface” of the Petroleum Lease Marketplace in the Preliminary Specification. Is that we have an environment that is accessed by the user, a member of a producer firm or Joint Operating Committee, through the People, Ideas & Objects user vision. There they find a rich market environment where they are able to resource the skills, knowledge and experience they need to secure and manage their Petroleum and Natural Gas lease and land base. Given that marketplaces time to develop and grow, with its own market supporting institutions, it will take on its own characteristics and efficiencies. Enabling the innovative oil and gas producer to leverage the marketplaces capabilities and focus on their core competitive advantages.

Making this transition to where the producers and Joint Operating Committees capabilities are sourced from the marketplace will take time, incur unique costs and involve many iterations. These “Dynamic Transaction Costs” as Professor Richard Langlois calls them are necessary as the transfer of capabilities from the firm to the market occur. One should recall the reasoning for this transition. And the reasoning is not as strong in the Petroleum Lease Marketplace as it is in other modules such as the Resource Marketplace module. Is that we are moving the industry from the “High Production Model” to the “Decentralized Production Model”. This provides the producer with the capability to shut-in production, and then have the associated costs of production not incurred.

One might think that, as governance costs diminish in the long run, the boundaries of the firm would be determined solely by capabilities. But capabilities also change over time as firms - and markets - learn. The classical presumption was that the firms capabilities would diffuse completely to the market in the long run, leading to complete vertical disintegration. This reinforces the point that capabilities are more than a matter of production costs in the neoclassical sense and, more importantly, suggest that the notion of a firms capabilities implies a kind of information or knowledge cost - the cost of transferring the firm's capability to the market (other firms) or vice versa. these costs are a neglected kind of governance cost, which I call 'dynamic' governance costs. These are the costs of transferring capabilities: the costs of persuading, negotiating and coordinating with, and teaching others. These costs arise in the face of change, notably technological and organizational innovation. They are in effect the costs of not having the capabilities you need when you need them. pp. 123 - 124

As one can imagine, this marketplace would be dynamic. The need for a dedicated software developer to identify and support not only the innovative oil and gas producer and Joint Operating Committee, but also those changes that are occurring in the marketplaces vendors and suppliers, would be critical. That is the role of People, Ideas & Objects.

"The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates." p. 3

This provides a high level summary of the “Marketplace Interface” of the Petroleum Lease Marketplace module. One that relies heavily on the user vision and the software development capability of People, Ideas & Objects.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CXC (PLM Part XXC)

Now that there is a marketplace established for the knowledge, skills and experience of the resources used in the Petroleum Lease Marketplace. We can begin to approach that marketplace from the point of view of its standardization and division of labor. So much of the work that is undertaken within a producer firm for Land administration etc. is done for the purposes of timeliness and accuracy. Due to the scope and scale of the individual producers volume of lease and land activity. Efficiencies from the analysis of the division of labor and specialization may not be available. With the development of the “Marketplace Interface” of the Petroleum Lease Marketplace the opportunity to conduct that analysis during the Preliminary Specification is provided.

It was autonomous innovation that Adam Smith had in mind when he argued that the division of labor enhanced innovation: each operative, by seeking ways to make his or her lot easier, would discover improved methods of performing the particular operation (Smith, 1976, I.i8, p. 20). The improvement he had in mind were such that they improved the efficiency of a particular stage without any implication for the operation of other stages. Autonomous innovation of this sort may even further the division of labor to the extent that it involves the cutting up of a task into two or more separate operation. Instead of being differentiating in this way, however, an innovation may be integrating, in the sense that the new way of doing things - a new machine, say - performs in one step what had previously needed two or more steps (Robertson and Alston, 1992). More generally, a systemic innovation may require small modifications of the way work is performed at each of a number of stages, and would thus require coordination among those stages. pp. 116 - 117

In today’s market we have powerful tools that help alleviate us from the repetitive nature of lower level work. Two of those tools are computers and globalization. Our analysis of the marketplace should use these tools to the fullest extent to enable us to focus our attention on innovation. If we look at the Petroleum Lease Marketplace “Marketplace Interface” from this perspective there is much work to be done, and a significant opportunity to provide real value for all producers. Having a Petroleum Lease Marketplace that provides the producer and Joint Operating Committee with the ability to focus their capability on building their land and asset base would be a worthwhile objective for this module. It is fully one half of an innovative oil and gas producers competitive advantage.

Designing and implementing a marketplace that organized these capabilities in an efficient and effective way would not be the difficult part. Ensuring that the user community was supported through their learning and development of new and innovative capabilities would be.

A market form of organization is capable of learning and creating new capabilities, often in a self reinforcing and synergistic way. Marshall describes just such a system when he talks about the benefits of localized industry. p. 120

To start this process we have the Preliminary Specification. It would provide us with a beginning of how this marketplace would be formed. When you consider the scope of the work that would need to be done to detail the “Marketplace Interface” the budget for the Preliminary Specification (all 11 modules equals $100 million) doesn’t seem that high after all.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXIX (PLM Part XXIV)

There is a distinct market capability that is available in the Petroleum Lease Marketplace of the Preliminary Specification. A capability that is not reflected in the Research & Capabilities module, a capability that resides in the “Marketplace Interface” of the PLM. A capability that provides the innovative oil and gas producer with the ability to participate in the dynamic marketplace of oil and gas leases, lands and properties. If the Research & Capabilities module handles the earth science and engineering aspect of the producers competitive advantage, it is the Petroleum Lease Marketplace that handles the Land and Asset Base attributes of the producers competitive advantage.

As we have discussed here many times, the amount of engineering and earth science effort for each barrel of oil or gas produced will continue to increase as time passes. Naturally therefore the volume of activity associated with oil and gas will increase as well. This imputes that the number of P&NG Leases and agreements will increase as will the number of Joint Operating Committees you may participate in. The Petroleum Lease Marketplace is the means in which to participate, make sense of and build your land and asset base from. It is reasonable to assume therefore that this may require a multiple of legal, administrative and negotiating resources on your behalf in order to achieve these outcomes. The “Marketplace Interface” therefore becomes the first place for you to source the skills, knowledge and experience you need.

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

It will be through the “pool” of knowledgeable providers who enable the innovative oil and gas producer. The “Marketplace Interface” will enable these providers to engage with the producers and build their firm. These will be the Land people, the administrators and those that support the negotiations and transactions involved in land deals. Traditionally these people have been employed by the individual producers, however, with the “Marketplace Interface” there may be a need to have these services provided by the marketplace. That may be one of the changes that occurs during the development of the Preliminary Specification.

But often - and especially when innovation is involved - the links among firms are of a more complex sort, involving everything from informal swaps of information (von Hippel, 1989) to joint ventures and other formal collaborative arrangements (Mowery, 1989). All firms must rely on the capabilities owned by others, especially to the extent those capabilities are dissimilar to those the firm possesses. p. 108

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXVIII (PLM Part XXIII)

Our fourth pass through the Preliminary Specification is focused on capabilities. And although it doesn’t seem like we ever talk specifically about them, we are in general. Professor Richard Langlois in his 1992 paper “Transaction Costs Economics in Real Time” provides us with an excellent definition of what capabilities are in the corporate setting.

This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." For the most part, Richardson argues, firms will tend to specialize in activities requiring similar capabilities, that is, "in activities for which their capabilities offer some comparative advantage" (Richardson 1972, p. 888). p. 27

Yesterday we discussed the “Marketplace Interface” of the Petroleum Lease Marketplace complete with the user vision. We hopefully saw with the brief description of how the system could provide a window on the Petroleum Lease Marketplace and how that contrasted with the current rows and rows of file cabinets. Application of the firms capabilities within that “Marketplace Interface” will be how the producer and Joint Operating Committee will build its firm and earn its profits. How much “knowledge of the particular circumstances of time and place” is not being acted upon in your firm today?

There will be significant change in the transition from the file cabinets to the deployment of People, Ideas & Objects Preliminary Specification. These changes impute that there will be a cost and part of these costs will be this software development. Professor Langlois calls these “Dynamic Transaction Costs”.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Who said that its not the destination, but its the path. That is what this software development is about, the path. We have a rough idea where we are going and what it might look like, however, without the involvement of the user in the development of these systems its all pretty much an exercise in futility. User involvement is critical to the success of People, Ideas & Objects. The Preliminary Specification is only a starting point, the user community can take it and build upon it as they desire and need, and over time as the organization and markets change, so will the software. And the capabilities of the marketplace and the firms will develop as a result.

F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXVII (PLM Part XXII)

Although we have been discussing modularity I think it is best that we start somewhat fresh from the beginning for the purposes of the Petroleum Lease Marketplace of the Preliminary Specification. Since this module is a “marketplace” that we are emulating it is important to focus on why we are designating it a market. The reasoning arises from the research into modularity of Professor Richard Langlois. This post will focus on that research and emphasize the “Marketplace Interface”, doing so by discussing and mentioning the highly controversial user vision, of the Petroleum Lease Marketplace”.

It was early on in the Preliminary Specification that I indicated that I would not mention the user vision. I think I made a mistake by making that assertion. I’m finding that my writing is constrained by not allowing the discussion to flow with use of the user vision as part of the “Marketplace Interface” of the Petroleum Lease Marketplace. As controversial as it was to discuss the user vision at that time, it was maybe too early in the Preliminary Specification to have any meaning. We now have some substantial attributes to the modules and the ability to add the user vision to the module is becoming a necessary element to express how I see the specification developing. Therefore I will now include discussion of the user vision in the details of the specification and hope that it will add value. If it seems too controversial, then just ignore it. I can’t seem to write around it any longer.

It was during the Preliminary Research Report that we initially applied Professors Anthony Giddens and Wanda Orlikowski’s research in Structuration to the Joint Operating Committee. There research states that people, organizations and society move together or there will be failure. Professor Orlikowski’s Model of Structuration states that technology is a part of society and these both define and constrain action. Therefore when we look at the two possible organizational types of architectures for Petroleum Leases we see the Marketplace and the File Cabinet. But seriously the choice is as stark and the contrast is that dramatic. To match the organization, the people and societal definitions and constraints make the marketplace the ideal architecture. To therefore designate a module within the Preliminary Specification as the Petroleum Lease Marketplace builds on this simple architecture. From Professor Richard Langlois “Modularity in Technology, Organization and Society”.

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

This next quote is the critical one. Its a bit of the chicken and egg problem however. I don’t know if we are taking elements of the technology and mapping them to the organization, or taking the marketplace and mapping it to the technology. Both are undergoing significant changes in the development of the Petroleum Lease Marketplace.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

Lastly a scenario, users need a window in which to view the marketplace. In the Petroleum Lease Marketplace is the “Marketplace Interface” which captures elements of the user vision. Consider a user was viewing a Google Earth representation of the Unit that they are a member of the Joint Operating Committee. While viewing, contextual tiles of agreements, leases and other data are populated with the properties information if the user wants to click on those and query the information it is there as well as historical accounting data. If users from another firm are also viewing the property, they can be seen and engaged in a collaboration, and immediately contextual tiles of information about the person are available to you, and any previous correspondence and outstanding matters appear on your screen. Meanwhile you click on the newly drilled well that you heard was performing beyond expectations to get an update of its actual production. You also notice that the adjoining lands have just been posted for bid by a producer firm who is not a member of your Joint Operating Committee. You are able to call on the other producers in the Unit and share a recorded video meeting within the Petroleum Lease Marketplace within ten minutes of that discovery, and set in motion a plan to deal with it.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXVI (PLM Part XXI)

Continuing on with our discussion of the Petroleum Lease Marketplace module of the Preliminary Specification. Our discussion on the boundary of the firm and market continues and begins to take on some of the elements of modularity. Both research topics of Professor Richard Langlois. It is remarkable the differences between the two marketplace modules. In the Resource Marketplace module there is a different context and feel then in the Petroleum Lease Marketplace. An attribute of the modularity principle and its ability to impose an enhanced division of labor.

In yesterday’s post we noted the ability to build a company was one of the things that could be done while working within the Petroleum Lease Marketplace (PLM). Implying that the marketplace was an area where the active state of affairs was to build something as opposed to just fill file cabinets with agreements. This is the key point as to why the PLM has to be a marketplace. It must emulate the personality of the people who are building the firm. From Professor Langlois’ Industrial Dynamics, Innovation and Development.

Industrial economists tend to think of competition as occurring between atomic units called "firms." Theorists of organization tend to think about the choice among various kinds of organization structures - what Langlois and Robertson (1995) call "business institutions.” But few have thought about the choice of business institution as a competitive weapon. p. 1

The “Marketplace Interface” of the Petroleum Lease Marketplace module of the People, Ideas & Objects system provides the innovative oil and gas producer with the competitive weapon they need to build their firm. Simple. And without having mentioned the controversial user vision.

On the other side of the ledger, an open modular system can more effectively direct capabilities toward improving the modules themselves (Langlois and Robertson 1992). Such a system harnesses the division of labor and the division of knowledge, allowing organizational units to focus narrowly and thus deeply; at the same time, it magnifies the number of potential module innovators, and thus can often take advantage of capabilities well beyond those even a large unitary organization could marshal. p. 19

The modular nature of the Preliminary Specification provides this ability to focus on the important attributes within the module. The Petroleum Lease and Resource Marketplaces are different just as the Financial Marketplace, Research & Capabilities and Accounting Voucher modules are unique. Each have thier own unique people and activities that are separate and distinct from one another. Yet, they all interact to support the innovative oil and gas producer.

A complex systems product is underlain by an architecture: a set of parts and a way of fitting those parts together. An integral architecture is one in which the parts depend on one another in complex and often unpredictable ways: the system is a tangle of spaghetti. By contrast, a modular architecture is one that regularizes the dependencies among the parts, forcing them to interact only in relatively formalized and predictable ways (Lanlgois 2002b) p. 6

The point that I am struggling to get across is the interface in which users will access the marketplace in the Petroleum Lease Marketplace. It is the “Marketplace Interface” that I am highlighting in this and yesterday’s post as what I think is the value to an oil and gas concern. It is through this somewhat simple software representation of the market that much of the value will be gained. We will continue on with the topic of modularity tomorrow.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXV (PLM Part XX)

In today’s post we will further discuss the boundary of firm and markets with respect to the Petroleum Lease Marketplace of the Preliminary Specification. In this the fourth pass we are focusing on capabilities. And the question should be what capabilities are we seeking to achieve from the Petroleum Lease Marketplace and why is there a need to transition to this new model of organization, a marketplace. For that lets begin with a quote from Professor Richard Langlois’ paper “Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization”.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

What we currently have is a number of departments; Land, Legal, Land Administration, some Production and Exploration Administration and lets not forget Accounting, currently manning the store that will “morph” into the Petroleum Lease Marketplace. These formerly buttoned down departments will transition to new roles, some in new service provider firms, where they will be part of a marketplace environment. It will be within the marketplace they will “market” their capabilities to those in demand for their services.

If a profit opportunity requires a configuration of capabilities different from what already exists in the economy, the Schumpeterian process of creative destruction may be set in motion. p.21

Its a marketplace, not a department within a bureaucracy. One within a dynamic, entrepreneurial and innovative oil and gas producer. A place where the act of buying and selling and trading leases or interests in properties, making deals or building companies can and will be done.

Seldom if ever have economists of organization considered that knowledge may be imperfect in the realm of production, and that institutional forms may play the role not (only) of constraining unproductive rent seeking behaviour but (also) of creating the possibilities for productive rent-seeking behaviour in the first place. To put it another way, economists have neglected the benefit side of alternative organizational structures; for reason of history and technique, they have allocated most of their resources to the cost side. p. 6

It is interesting that one of the roles of the firm, in this revised boundary of the firm and market, is the enhanced role that coordination will take on. This next quote states explicitly the need to enhance the coordination by way of routines and capabilities.

All recognize that knowledge is imperfect and that most economically interesting contracts are, as a consequence, incomplete. But most of the literature considers seriously as coordinating devices only contracts and the incentives they embody. It thus neglects the role - the potentially far more important role - of routines and capabilities as coordinating devices. Moreover, the assumption that production costs are distinct from transaction costs and that production costs can and should always be held constant obscures the way productive knowledge is generated and transmitted in the economy. p. 14

Since contracts are one of the key end products of the activities that are undertaken in the Petroleum Lease Marketplace module. It is these contracts incompleteness that will continue to demand the services of those employed in the marketplace and the firm. Services of “routines and capabilities as coordinating devices”. Making the “marketplace” a key interface of the Petroleum Lease Marketplace module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXIV (PLM Part XIX)

The Petroleum Lease Marketplace module is the second “marketplace” module of the Preliminary Specification. Like the Resource Marketplace module, which deals with the resources used in the development of oil and gas, the Petroleum Lease Marketplace emulates the marketplaces that exist for Petroleum & Natural Gas Leases, concessions, etc. and the associated activities involved around those “things”. To accurately reflect on the marketplace metaphor I have to mention the user vision, which I have now done, and will not speak of it again. What is helpful in understanding the capabilities that are attained by developing “marketplaces” in the Preliminary Specification is this quote from Frederick von Hayek.

The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. ...The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. (Hayek 1945, pp. 526 - 527)

Prices for the bonus paid on acreage. The price asked by a producer for a working interest share in a property. These are the activities that occur in the marketplace everyday. What we are doing in the Petroleum Lease Marketplace is emulating the real marketplace to enable it to grow thicker and more robust. With market opportunities being dislocated some times by thousands of miles from interested parties, the ability for market participants to meet is limited. Even with the Internet the chance of finding someone is difficult. However, with a module like the Petroleum Lease Marketplace, you have a focused forum in which to deal with interested parties. At the same time you have the means in which to transact and manage the business, develop agreements, pay lease rentals etc. The Petroleum Lease Marketplace is a software environment that provides for the marketplaces emulation.

Critical to the success of this marketplace is the further division of labor and specialization. We have discussed earlier in the specification how the Lease Rental Administration could be handled on an industry wide basis by a service provider. Other roles may be able to be handled in a similar fashion in the Petroleum Lease Marketplace. With the development of this software module or marketplace emulator, would be the market supporting institutions that would bring in the efficiencies that would enhance the effectiveness of the marketplace. Providing assurances such as when a new P&NG Lease was acquired it was known that it would automatically have its lease rentals paid by your service provider.

There are many advantages to emulating the Petroleum Lease Marketplace in the Preliminary Specification. Just as there are advantages in the Resource and Financial Marketplace modules. Attempts at exchanges and other technical solutions have been tried before but they don’t have the “business” aspects that a “marketplace” has. What we are replicating is a business unit, not creating a technological solution. A significant difference to the users and producers who use the marketplace today, and will use the Petroleum Lease Marketplace module if it provides further value in their use of the actual marketplace.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CLXXXIII (PLM Part XVIII)

As we had noted in the Resource Marketplace module of the Preliminary Specification. The capability for the producer to scale back their production in the face of poor commodity prices was possible. In the Resource Marketplace module we were talking about the implications of shutting in production would have on the costs of production. That is by moving to the “decentralized production model” from the “high throughput production” model, deeming the costs of production as variable, therefore costs decline in line with revenues. It is in the Petroleum Lease Marketplace module that the capability to reduce production is acquired through the "Marginal Production Threshold Interface" and is the subject of this blog post.

The operational decision making authority lies with the Joint Operating Committee. And we have discussed in the past how the decision may be made to reduce production by 15% or some other amount to help return the commodity markets to balance. With the desire to move to a “decentralized production model”, where all of the costs are variable and therefore suspended with the production, the decision to shut-in production completely, or just partially is something that should be possible through the "Marginal Production Threshold Interface".

The interface would provide the means in which the partnership could agree to the criteria in which production would be suspended. We see today with Natural Gas prices in North America, a situation where no one is making any money. The ability to incinerate capital is something that the oil and gas industry is famous for and I would suggest they begin to actively do something about their poor reputation. When prices meet the criteria that the partnership have agreed too to curtail production. Then the operational steps to reduce the production will automatically be put in place when those criteria are met. Whether that is manually issuing the order to reduce the production, or if the systems are automated, the system is automatically triggered when the criteria is met.

The ability to collaborate and agree among the partnership falls within the domain of the Petroleum Lease Marketplace. Having all of the Joint Operating Committees that you have an interest in located within one interface in the Petroleum Lease Marketplace will provide you with an understanding of what your production profile will be at various price scenarios. This can be provided through a “what if” scenario page within the interface. Extensions of the prices and volumes will also calculate what your pro-forma revenues will be. Assumptions can be made on the costs.

If each producer within the industry was able to manage their production in this manner there would be less destruction of capital and less volatile commodity prices. The ability to manage prices by spending capital, or not, is a very blunt instrument that leads to over and under production at the extremes. This mechanism will enable the producers to stop producing the marginal production and save the reserves for the day when they can be produced at a profit. A little faith in markets is all that is required.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.